UK could be ready to nationalise Northern Rock

The UK government is ready to bring in emergency legislation to nationalise Northern Rock, according to reports.

Rather than a conventional purchase of the company and its assets, Prime Minister Gordon Brown and Chancellor Alistair Darling have prepared a short emergency bill that would bring Northern Rock under major control of the UK government.

While the treasury has repeated suggested nationalisation is a last option, and a private buy out remains their preferred way forward, so far a private take over has proved problematic.

On the one hand, major share holders such as hedge funds SRM Global and RAB Capital have shown disdain at the offers being made, stating that these woefully undervalue Nothern Rock and their investments.

Additionally, while investment bank Goldman Sachs has looked into selling off Northern Rock debt as bonds, the costs involved are being cited as prohibitive, not least because they would require a premium investment grade to make them attractive.

Meanwhile, as Asian consortiums shore up major US banks with funding, the limited UK market of Northern Rock has resulted in little interest from overseas investors in bringing together additional rescue packages.

If Northern Rock were to be nationalised, it would create problems for not simply shareholders of the company, but also for the UK government itself.

This is not least because by taking on the company’s debt, this would be added to the national debt figures, potentially breaking Gordon Brown’s fiscal rules on borrowing.

However, the alternative option - of watching Northern Rock slide into administration - is regarded as an even worse outcome all round.

While details of the proposed legislation have yet to be published, the government has already lined up former boss of Lloyd’s insurance, Ron Sandler, to govern Northern Rock, should nationalisation take place.

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